How to Pass the Chapter 7 Means Test

How to Pass the Chapter 7 Means Test

Chapter 7 Means Test: How It Works

Chapter 7 bankruptcy allows qualified individuals to get their debts partially or fully discharged. It is the most inclusive debt forgiveness option, meaning most, if not all, of your debt can be discharged if you file successfully. Individuals, partnerships, and corporations or business entities can all seek relief from unsecured debts such as credit card balances, auto loans, mortgage payments, etc. through Chapter 7 bankruptcy.

If you’re considering filing for chapter 7 bankruptcy, you must pass the means test in order to be eligible for this type of relief. The means test basically determines if you have the means to pay your debts. As such, the means test will compare your current monthly income for the past 6 months to the average income in your state for your particular household size. You will have to complete what’s called the “122A Forms,” which consist of Bankruptcy Form 122A-1, Official Form 122A-1Supp, and Official Form 122A-2.

On these forms, you must input and calculate information such as your income and expenses, your current monthly income, and more. However, you may not have to fill out each and every form. Read below to understand why:

Official Form 122A–1, Chapter 7 Statement of Your Current Monthly Income: ALL individuals filing for Chapter 7 bankruptcy must fill out this form, as it compares the debtor’s current monthly income to the median income for households of the same size in their state. If their income is not above the median, the individual will NOT have to fill out the second form, 122A-1Supp, because they are eligible to file for Chapter 7 relief.

Official Form 122A–1Supp, Statement of Exemption from Presumption of Abuse Under § 707(b)(2): This form determines whether or not your debts consist mostly of consumer debts or because you provided a certain military or homeland defense service. If one of these exemptions applies, you should file Form 122A-1Supp and fill out Part 3 of Form 122A-1 to verify.

If you qualify for an exemption, you only have to complete the verification on Form 122A-1. If you don’t qualify for an exemption, however, you should complete all sections of Form 122A-1 and file it alone, without the supplemental form.

If your Form 122A-1 reveals that your income is higher than the state average, you will take the means test.

In other words, if your current monthly income is lower than the state average for the same household size, you pass the means test. You can file for chapter 7 bankruptcy. However, if your current monthly income is higher than the state average for the same household size, you must continue with the means test. This includes completing the following form.

Official Form 122-2, Chapter 7 Means Test Calculation: Individuals whose average monthly income is higher than the state median and do not qualify for an exemption described above are REQUIRED to complete the means test calculations. In the calculations, you will reduce your income by living expenses and payment of certain debts, resulting in an amount that can be used to pay other debts.

If that amount is high enough, a judge may determine that you have enough income to pay off your debts and may exclude you from getting relief under chapter 7. One way to bypass this obstacle is to prove that special circumstances resulted in your increased expenses or reduced income.

On the other hand, if your calculation produces an amount that is too low to pay your debts, you can obtain relief under chapter 7.

Other Requirements for Chapter 7 Bankruptcy

Besides passing the means test, you must also have received credit counseling from an approved credit counseling agency in either an individual or group session within 180 days of filing for Chapter 7. In addition, you must not have filed for bankruptcy if your petition was dismissed in the last 180 days because you:

  • Willfully failed to appear in court
  • Willfully failed to comply with court orders
  • Voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens

Need Help Filing for Chapter 7 Relief?

As you can see, the chapter 7 bankruptcy process is complex and confusing. One minor error on your paperwork could cost you the opportunity to obtain relief under chapter 7 of the Bankruptcy Code, which is why we encourage you to seek the help of our experienced and focused lawyers at Balbo & Gregg, Attorneys at Law, PC.

Get in touch with us online or at (866) 580-3089!